| NEW YORK, March 22
NEW YORK, March 22 The slumping U.S. healthcare
stocks at the center of efforts to dismantle the Affordable Care
Act are expected to stay volatile as Republican legislation
heads into a vote on Thursday that could signal how protracted
their battle to repeal the law will be.
In the two weeks since Republicans unveiled their plan to
overhaul the law, known as Obamacare, shares of hospital
operators and Medicaid-focused health insurers have struggled -
with some stocks falling more than 10 percent - due to concerns
the benefits the companies gained from coverage expansion will
Investors and analysts expect more sharp moves in reaction
to new developments with the bill as the process evolves,
starting with Thursday's expected vote on the legislation in the
House of Representatives.
"They definitely are trading off of headlines and that’s
mainly because the situation is very fluid currently," said Mark
D’Cruz, senior investment analyst at Key Private Bank in
D'Cruz manages investment strategies that hold shares of
large diversified health insurer Aetna but no hospitals
or smaller Medicaid insurers.
"I don’t think there’s much upside right now from trying to
guess what the final outcome of the legislation will be," D'Cruz
Hospital shares have slumped since House Republican leaders
unveiled their Obamacare repeal plan on March 6. Shares of HCA
Holdings, by far the most valuable publicly traded
hospital operator, have fallen about 7 percent while shares of
Tenet Healthcare tumbled 22 percent.
Concerns about the stocks heightened after congressional
researchers estimated 24 million people will lose healthcare by
2026, which could mean a return to massive unpaid patient bills
"Hospitals benefited dramatically from Obamacare, simply
because all of a sudden they had more people with insurance and
less bad debt expense," said Scott Schermerhorn, chief
investment officer with Granite Investment Advisors, which does
not own hospitals. "And now it looks like it’s going the other
The recent declines blunted momentum in hospital stocks,
which had been rising to start 2017.
The enterprise values of hospital companies are generally
around 6.5 times to 7 times their expected operating earnings,
which is still above their historic low of about 6 times,
according to Jefferies analyst Brian Tanquilut, suggesting the
stocks could have more room to fall.
"A lot of investors are asking the question: Do I need to be
in the hospital group right now when I know there’s going to be
a lot of volatility?" Tanquilut said.
Shares of health insurers that specialize in managed care
for the Medicaid program for low income Americans have also been
pressured, with the legislation set to roll back an expansion of
Since the bill's introduction, shares of insurers Centene
and WellCare Health Plans have declined about 4
percent each. Shares of Molina Healthcare, which also
issued disappointing financial results in mid February, have
tumbled 11 percent.
Larger insurers, which derive a smaller portion of business
from Medicaid, have seen less impact to their shares.
"On the insurer side, it’s a little bit more complicated,"
said John Nolan, portfolio manager at WBB Asset Management,
noting that he would avoid insurers with heavy Medicaid
(Reporting by Lewis Krauskopf)